The IRS told a tale:
A Taxpayer creates a secure Business Online Account at IRS.gov and lets us know which communications methods they prefer – email, paper mail or phone. The taxpayer selects email. They later receive an email explaining tax credits and deductions for which they may be eligible. Their online account gives them access to easy-to-read data to start this year’s tax return. They have questions about how to file employment tax returns. A chatbot provides initial answers, and if they have specific questions, they can request a call from an agent. An agent calls them back, reviews their account history with them, and answers their questions. The taxpayers then prepare their own return. When they submit a return online, taxpayers get a real-time alert that shows easy-to-fix errors. They correct the errors and re-submit the return. After they file, they use their online account to track refund status and adjust preferences. They opt to receive their refund via direct deposit.
This vision of the tax filing process is not quite as ambitious in its simplicity as a taxpayer replying “Yes” to a text sent by the government (as some Swedes do), and at this time even this more mundane plan the IRS put out remains science fiction. However, the IRS recently released the “Internal Revenue Service Inflation Reduction Act Strategic Operating Plan.” This plan lays out explicit goals, as well as how they will be achieved. Even though it was a month and a half late for the Secretary of the Treasury’s six-month deadline, it serves as proof that there is some movement towards making paying taxes a simpler process for the taxpayer in the US.
In the plan, the IRS gave itself 5 primary objectives:
- “Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible.” ($4.3 billion).
- “Quickly resolve taxpayer issues when they arise.” ($3.2 billion).
- “Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.” ($47.4 billion).
- “Deliver cutting-edge technology, data, and analytics to operate more effectively.” ($12.4 billion).
- “Attract, retain, and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers.” ($8.2 billion).
Each of the 5 objectives is accompanied by several “initiatives” with multiple milestones and “key projects,” ultimately culminating in a 150-page report. While there are many listed initiatives, here are some that appear to be most relevant:
- Initiative 1.2 seeks complete digitalization for all forms by Fiscal Year 2027.
- Initiatives 1.4, 1.6, 1.10, and 1.12 anticipate online access and management for taxpayers’ affairs comparable to that of a bank customer beginning in Fiscal Year 2023 and fully enhanced by Fiscal Year 2026.
- Initiative 1.7 promises “to provide as much certainty on tax issues as possible.” This would be accomplished through more human resources and unspecified “additional guidance tools” for informal guidance. Completion of this initiative is projected to occur in Fiscal Year 2024.
- Initiatives 2.1-2.5 seek by Fiscal Year 2027 to timely notify taxpayers of errors and missed opportunities for credits/deductions and proactively guide the resolution of such issues. Notices will be written in plain English (rather than legalese that requires special knowledge of law or accounting) and at a similar level of linguistic accessibility for the other 7 most common languages in the U.S.
- Initiatives 3.1-3.4 purportedly reorganize the structure for IRS enforcement into a centralized process reliant on analytic models to detect noncompliance by Fiscal Year 2025, resulting in higher audit rates. The target for the audit rates, if there is one, is not explicitly given. However, it was noted that the audit rate for large corporations dropped from 10.5% to 1.7% from 2010 to 2019. The audit rate for partnerships in 2019 was 0.05%, down from 0.48% in 2011, and it was also recognized that individuals earning $1 million or more had an audit rate of 7.2% in 2011 and 0.7% in 2019.
- The report also stated that full modernization of IRS computer technology is anticipated to be achieved in Fiscal Year 2028.
The plan claimed that the number of auditors currently employed represents a record low, unseen since the Second World War. They seek to change this, and estimate that an additional 10,021 full-time equivalents (FTEs) will be hired during Fiscal Year 2023, of whom 1,543 will be allocated to enforcement. For Fiscal Year 2024, 19,545 FTEs total would be employed, with 7,239 of them working specifically in enforcement.
The plan also gave some interesting statistics related to taxpaying in the US, it states that:
- 260 million tax returns are processed each year.
- The average length of a tax return for a large corporation is 6,000 pages.
- The average individual income tax return requires 13 hours.
- The IRS sent almost 13 million notices regarding mathematical errors in Fiscal Year 2021.
- Of those eligible for the Earned Income Tax Credit, 21% did not claim it in 2019.
- “Several years may go by after filing before the IRS contacts a taxpayer about an issue.”
- Within the last decade, the number of IRS revenue agents decreased by nearly 35% while the amount collected in annual tax returns increased by more than 15 million.
- Individual taxpayer returns reporting more than half a million have grown by over 70%.
- The audit rate has decreased by 76% from 2011-2019.
- “IRS employees and taxpayers currently use over 600 applications to conduct the business of the IRS, many of which are custom-built and run on-premises in IRS data centers.”
Plans change, and at the moment, the IRS plan is entirely aspirational. However, sufficient funds have been allocated for the IRS to make the program a reality. The project promises to refrain from auditing individuals with income of $400,000 or less at a rate higher than “historic levels,” but “historic levels” for those specific taxpayers were conspicuously absent from the report. Moreover, a major thrust of the plan is to return the audit rates for the wealthy taxpayers, again to “historic levels,” which appears to sit at about 10-times the current rate for some levels of income. If the “wealthy taxpayer” definition is applied to any taxpayers with income of $400,000 or less their audit rate could be up to triple the current rate. Due to the IRS failing to disclose the specific “historic levels” that they are referring to, the poorest taxpayers could have an audit rate nearly 20 times the current rate without technically violating the “historic level” ceiling.
If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email email@example.com for a consultation.
 The IRS seeks reallocation of Inflation Reduction Act funds to devote $3.9 billion to “Energy Security” rather than the prescribed half billion for implementing Inflation Reduction Act energy tax incentives.